Consumer confidence weakened further in September
The index now lies perilously close to its all-time low reading of 41, which was recorded in February this year. The index remains ten percentage points below where it stood in September last year.
Robert Gardner, Nationwide’s chief economist, said: “These relatively downbeat findings are understandable given the challenging economic backdrop.
“The economy has hardly grown in 2011 and pressure has continued to mount on household budgets. Labour market conditions have deteriorated, with the unemployment rate moving up to 8.1% in the three months to August, its highest level for fifteen years.
“At the same time, the cost of living is rising sharply, with inflation moving above 5% in September – more than twice the pace of underlying wage growth.
“At this point the UK economy is heavily reliant on international trade to drive growth, as weak labour market conditions are holding back household spending and austerity measures weigh down on government expenditure. With demand in the UK’s main export markets in Europe and North America likely to remain sluggish through the remainder of 2011, this suggests that the UK recovery is also likely to remain weak in the near term.
“Without strong growth, the UK labour market is unlikely to improve in the immediate future. This appears to be a view shared by most households – just one in five believe there will be an improvement over the next six months leading to many or some jobs being available. The difficult jobs market situation is likely to continue to weigh heavily on confidence in the months ahead.
“It is possible that recent signs of concerted action by policymakers could bolster sentiment in the months ahead. The Bank of England increased its asset purchase scheme by £75 billion at the start of October and kept interest rates on hold at just 0.5%. The Chancellor also stated that the Treasury is exploring the possibility of “credit easing”, whereby measures would be introduced to help increase the flow of lending to small and medium sized businesses. This could translate into increased consumer confidence if people believe these efforts will be successful in lifting the economy out of its current malaise.
“The Spending Index fell back slightly in September but it has proven to be one of the more resilient measures in recent months, recovering ground after falling to an all-time low in February.
“A quarter of people believe now is a good time to make a major purchase. This is at odds with the challenging economic outlook, high inflation and falling real incomes, which has put a severe squeeze on spending power. It remains to be seen whether this will translate into increased spending in the months ahead.
“It therefore comes as no surprise that households’ assessment of the current economic situation dipped again in September, with a greater proportion of people judging it to be “bad”.
“Interestingly, there was very little change in consumers’ views towards the future state of the economy, despite the gloomy headlines evident in recent months. But this is probably a reflection of their already low expectations – just 15% of people believe there will be an improvement in the economy over the next six months.”